Italy minister may quit on Friday over graft scandal: sources

ROME (Reuters) - A senior Italian minister may quit as early as Friday over a corruption inquiry that is embarrassing Prime Minister Matteo Renzi's government, two parliamentary sources said.

Transport and Infrastructure Minister Maurizio Lupi has faced mounting pressure to resign after police arrested four people in a sweeping investigation over corruption in public works contracts, the sort of graft that has long affected Italy's chronically stagnant economy.

Lupi is not under investigation in the probe into contracts worth 25 billion euros ($26.65 billion) for projects including a high-speed train line and Milan's Expo world fair, but the links between the suspects and his ministry have raised outcry.

He has not commented on the allegations of graft in his ministry.

Renzi has faced widespread criticism for not doing more during his year in office to tackle rampant corruption which deters foreign investment in Italy.

On Friday Lupi, whose New Center Right (NCD) party governs in coalition with Renzi, will address parliament to explain his position. Two lawmakers, one of them from the NCD, told Reuters that he would probably announce his resignation.

If Lupi goes it will give the 40 year-old prime minister a delicate political problem to replace him while maintaining the balance of his right-left ruling coalition.

On Wednesday Lupi said he believed he still had Renzi's backing, but that looked increasingly unlikely on Thursday as he was criticized by lawmakers from Renzi's Democratic Party (PD).

Luigi Zanda, the PD's Senate leader, said the fact Lupi was not under criminal investigation did not mean he had no case to answer. "Politics has its rules and sometimes an objective responsibility is enough to warrant resignation," he told the Messaggero daily.

A former top official in Lupi's department was among those arrested, and the warrants allege that one of the other suspects helped secure a work contract for Lupi's son.

Prosecutors said the same suspect, a businessman involved in lucrative public works contracts, had given the younger Lupi a 10,000 euros ($10,716) Rolex watch as a graduation present.

Six years of on-off recession in Italy have both allowed corruption to spread and hampered its chances of returning to economic growth.

If Lupi continues to resist, next Tuesday he faces a parliamentary no-confidence motion tabled by the anti-establishment 5-Star Movement and the small far-left party, SEL.

On Thursday he met Renzi and Interior Minister Angelino Alfano, the leader of the NCD, to discuss the situation. Renzi has so far made no public comment on the Lupi affair.